For SaaS companies, rule of 40 is a quick back-of-the-envelope calculation, to measure the healthiness of the business.
Score = top-line growth + bottom-line margin
Score of 40 or above is good – e.g. a business grows at 40% with 0% adj. ebitda margin.
The valuation for those businesses, which usually starts at 10x revenue, is assuming a maturity stage of 0% growth and 40% profitability.
10x revenue @40% profit margin = 25x P/E
8x revenue @40% profit margin = 20x P/E